Monthly Archives: November 2009

These are exciting times! The opportunity for a peaceful (although not painless) revolution is upon us. The masses are slowly coming to the realization that central planning does not work. Witness the failure of existing foreign policy, financial mismanagement, and currency debasement.

In Dr. Gary North’s recent article Digits and Revolution he shows that the revolution is already happening. To help it along, the recipe is to create Free Market alternatives that put the governmental (central planning) systems out of business.

Here are a few excerpts from Dr. North’s article with my comments below:

Years ago, my friend Robert Thoburn, the entrepreneur who developed Fairfax Christian School, was standing in line at the Post Office at Christmas time. The line was very long. He turned somebody next to him and said it would sure be better if the system were run by the government. He got an incredulous look; then that person smiled. Thirty years ago, that seemed like a fruitless observation. Yet, as it has turned out, we could lose the Post Office tomorrow and barely feel it. We don’t use first-class mail to communicate any longer. We use the Internet. We use Federal Express and UPS and other delivery systems to deliver anything really important that we have to send. The Post Office in effect has gone senile.

We don’t sense that it’s gone. Yet the reality is this: we have replaced something with things that are better. Therefore, at some point, we will see the Post Office either go out of business or become simply a forgotten memory. Yet the Post Office is part of the Constitutional system. The Post Office has always been a way for the government to control the flow of information. As Robert Nisbet said in an autobiographical essay, in the year he was born, 1913, the only contact that the average American had with the Federal government was the Post Office. How much contact do you have with the Postal Service today? It delivers mostly junk mail to you. We ought to think of the U.S. Postal Service not as snail mail but as junk mail. It is the junk mail service for the junk mail industry. Even this is subsidized. It gets cheaper rates.

We have seen the demise of the Post Office operationally over the last ten years, yet we have paid almost no attention to this. There has not been a revolution in our thinking about the Post Office. There has simply been a kind of forgetfulness. We haven’t paid much attention to the fact that we don’t need it anymore. This has not taken any kind of an organized political movement.

Dr. North goes on to say:

The Post Office is sacrosanct. It is untouchable. But now it is simply ignored. This is the best way to have a revolution. Create a free-market alternative to a particular government institution, and then refuse to use the boondoggle anymore. At some point, we can simply vote to de-fund it. We can privatize it. Nobody will care, because hardly anybody is using the system any longer.

Here is my slogan for political reform: Replacement, not capture; then de-funding.

Let us take this slogan and begin to apply it to all the government institutions that we deal with on a regular basis. Apply it especially to the Federal government.

We are seeing the creation of a new economy in which we really do not need the Federal government, except for welfare services for the aged. It is going to go bust because of these welfare services. So, the primary objective that we ought to have is to create alternatives to the welfare system. We don’t need to call for the shutting down of a particular government agency tomorrow, although in principle that would be the best way. But that would be an overnight political revolution, and I really don’t believe in overnight political revolutions.

Overnight political revolutions always centralize power. That is what Frederick Engels taught, and that is what I believe. What I believe is best for the country is a quiet social revolution, which is marked by a shift of reliance away from all government money toward free-market and charitable funding. We will simply walk away from the system. When enough people walk away from the system, and the rest of them lose their shirts when the system goes belly-up, we will be in a position to have a real revolution, one in favor of freedom.

This revolution will be one of decentralization and some form of operational secession. I don’t think states are actually going to break away from the union. I believe that the governors and mayors are not going to bother to get Federal grants, because the money is either not available or won’t buy anything. When we get to that stage, we will be prepared for a new period of liberty. That day is coming. The government has shot his wad, and the Federal Reserve, in shooting whatever wad it has left, is going to debase the currency.

The transformation is taking place right under our noses. As George Orwell said, it is a constant struggle to see what is happening under our noses.

How can you participate? If you vote, stop. Recognize the immorality of voting as so eloquently articulated by Lysander Spooner in his essay No Treason VI: The Constitution of No Authority and in Ken Schoolland’s Philosophy of Liberty. Realize that voting is what happens when two wolves and a sheep decide on what to have for dinner. Simply start using Free Market alternatives to central planner programs. Vote with your dollars. Withdraw your support of central planners like the Voluntaryists. If you are an entrepreneur you have the opportunity to profit by creating and offering alternative services at a lower cost. If you work for a government agency start making plans to move into the private sector where you will be better recognized for your talents.

Will the central planners give in easily? No, they will do whatever they can to maintain power. They will continue to woo voters with the promises of sharing in the stolen property they take by taxation and majority vote. If man is to achieve freedom he must stop living off of the backs of others. Education is the key to freedom. The internet is helping to make this happen.

Man does not instinctively wish to be the slave of another. It is against human nature. Only in his ignorance does he continue to make choices that enslave him. The innate desire to live is that same desire for liberty. Without liberty you do not have a life that you can call your own.

Parasites cannot live without hosts. We can starve the parasites and educate our fellowmen by sharing articles like this one.

Posted onNovember 26, 2009|Comments Off on The Menace and Immorality of the Welfare State

The Menace and Immorality of the Welfare State
by Richard M. Ebeling

In the United States policies are being promulgated by those with political power in Washington, D. C. that will involve a massive and dangerous growth in the size and scope of government. At the core of the Obama administration’s push for implementing a comprehensive national health care system and related programs is a radical ideological belief in political paternalism and the welfare state.

In the face of the euphoria of those demanding such a huge expansion of “Big Brother” over even more of our lives, it is worthwhile reminding ourselves of the premises behind and the realities of welfare statism.

Here is an excellent interview with Dr. Richard Ebeling where he is defending the free market and why it is the only moral choice. Charity = Compassion whereas Redistribution = Compulsion and the Loss if Liberty.

The only opinion I would add is that even seemingly “necessary” government services such as “the protection of property” and “national defense” can be better provided by the free market where there is competition for your dollars. In a free market you have the ability to withdraw your support if you are not satisfied with the services being offered forcing the provider to earn your business (see Chaos Theory by Dr. Robert Murphy). A little bit of compulsion is like being a little bit pregnant. Limited government often grows to unlimited government.

Nov. 26 (Bloomberg) — Vietnam, struggling to control accelerating inflation and a widening trade deficit, will keep weakening the dong after devaluing the currency for the first time since December, black-market rates and forwards show.

The central bank said yesterday it will permit the currency to decline a further 3 percent today, after it fell 5.4 percent in the past year. The unofficial rate offered at gold shops in Ho Chi Minh City is 9.7 percent weaker than yesterday’s spot- market price of 17,886 per dollar. Contracts based on the exchange rate in 12 months imply a 15.6 percent depreciation.

Inflation accelerated to a six-month high of 4.35 percent in November from a year earlier and the nation’s balance of payments worsened as exports dropped and rising commodity prices swelled the cost of imports. The dong has slumped 22 percent in the past decade and the government risks “damaged credibility” by allowing further losses, according to Standard Chartered Plc.

“Whenever you devalue a currency, there is general expectation for more,” said Thomas Harr, a foreign-exchange strategist in Singapore at Standard Chartered, which predicts a decline to 19,000 by the end of next year. “The key challenge is the widening trade deficit and slowing inflows from foreign direct investment, remittances and equity inflows.”

The State Bank of Vietnam decided to lower the reference rate 5 percent to 17,961 against the dollar, close to yesterday’s spot rate. That was the first such move since Dec. 25. The dong’s decline will be limited as policy makers also narrowed its trading range to 3 percent from the daily rate, from a 5 percent band adopted March 23.

The following is a response by one of our readers to a friend’s question regarding deflation vs. inflation and the impact on the gold price:

Hi Kevin,

Thank you for sending over that report by Nick Guarino. He makes some great points and I believe he is right in many cases although I have some contrary opinions on gold. I have not looked at his oil or stock scenario. I’ve listed his arguments below with my responses to each of them. I also recommend listening to the following audio interview with John Williams of ShadowStats.com where he specifically addresses the inflation/deflation debate:

I also recommend listening to the radio interviews with Jim Willie (mentioned below).

1. Nick says: “IMF has plenty of gold to sell into the market.”

Response: This is true. But the real question is will there be sufficient demand to absorb it? I say yes. India bought the 200 tons (which is money they spent on gold instead of U.S. Treasuries). China has continued to buy and plans to continue. This is being referred to as the “Beijing Put” (http://tinyurl.com/n3nvrs). Sri Lanka just recently announced a major purchase of gold and Russia has stated its intention to buy more gold too (http://en.rian.ru/russia/20091119/156903575.html).

2. Nick says: “Prices are in deflation not inflation.”

Response: Yes, prices are down but they are down primarily in financial assets which were previously “inflated” with easy credit. These debt-financed assets will continue to fall in price as defaults rise and lending shrinks. Prices in consumer goods and services will begin to rise as the dollar drops.

It is important to note that the proper definition of inflation is “an increase in the money supply”. Rising prices are only a result of an increase in the money supply and these rising prices may not show up right away or they may show up in specific assets over others (gold and stocks versus houses).

3. Nick says: “Collapsing credit is deflationary”.

Response: Not necessarily. When a debtor defaults on his debt, the money that was lent stays in the financial system. It is not taken out. These debt defaults show up on the financial statements of the banks (more on this later). The pay-down of debt does shrink the money supply but most people can’t pay off their debt because they owe more than the assets securing these debts are worth. This will continue to cause defaults.

4. Nick says: a.) “The dollar and the U.S. Government are too big to fail; b.) If the dollar fails the world will be thrust into an economic Dark Age therefore foreign governments will not let it happen; c.) Foreign governments must buy every dollar of U.S. Government debt otherwise they will be wiped out first; d.) Demand for U.S. Debt is at an all-time high evidenced by low rates.”

Response: I will Respond to these individually:

a.) “The dollar and the U.S. Government are too big to fail”They are not too big to fail. Yes, this would create a lot of pain but at some point foreign lenders will cut off the credit card. There is a point when creditors realize that they will never be repaid and it no longer makes sense to throw good money after bad. Of course, foreign governments can’t do this all at once without hurting themselves so they play a risky game of slowly and quietly diversifying out of dollars hoping not to spook others and create a stampede out of the dollar – hence, the steady dollar decline and relentless gold rise. This is hard to do safely and will likely fail as the dollar flight accelerates. China has been buying every resource company they can get their hands on which is another way of dumping/trading their dollars for these real assets (http://tinyurl.com/y8jby2z).

b.) “If the dollar fails the world will be thrust into an economic Dark Age therefore foreign governments will not let it happen.”In addition to the response in “a.” above, foreign governments must choose between some pain now or more pain later. As they diversify out of dollars and buy gold they hope to be the first ones out of the burning theater. It is their intent to offset dollar losses with gold gains. This will likely turn into a stampede. Yes, a Dark Ages will happen but the longer they wait the worse it will be.

c.) “Foreign governments must buy every dollar of U.S. Government debt otherwise they will be wiped out first.”Same responses as “a” and “b” above. Also, they are going to be wiped out anyway so they might as well get rid of their dollars as fast as they can while they still can.

d.) “Demand for U.S. Debt is at an all-time high evidenced by low rates.” Yes and no. The demand is high but unsustainable for the reasons stated above. There is also substantial speculation that the Fed is already buying these treasuries (Quantitative Easing) through back door foreign intermediaries (Jim Willie: Systemic Crisis: audio interviews http://tinyurl.com/ydakvlw). Could this be one reason why they don’t want an audit?

Response: This is mostly all talk. I’ve already shown above how several of these countries are slowly diversifying out of the dollar in favor of gold. What most countries fear is their currency strengthening against the dollar causing their exports to become expensive and “bad for business”. To combat this, they can either buy dollars or devalue their own currency. Many are simply choosing to devalue their currency. This causes their currencies to devalue against the one currency that cannot be devalued: Gold. Gold is resuming its supreme role as a currency (not just a commodity). Gold is the oldest form of currency and has been around since biblical times – longer than any other currency. (see “What is Money?” http://tinyurl.com/y8ay3y4).

6. Nick says: “M3 money supply is not growing, global liquidity and credit are collapsing…there is no freakin’ money.”

Response: Yes, M3 has slowed but this is only temporary. Here’s why. Banks’ excess reserves have exploded from 2 billion in July, ’08 to 1.06 trillion today (Money Supply chart: [http://tinyurl.com/yfv54aq] and Dr. Reisman article: http://tinyurl.com/yfnv4rn). These excess reserves are funds that have not been lent out and have not created additional credit expansion. In my opinion, the reason is that the banks are still experiencing (and expecting) horrendous losses and are looking to restore their balance sheets. At some point their insolvency and inability to resume lending will frustrate the government (due to the continued cratering of the economy) and the banks will be nationalized. This will give the government, as the new owners, the ability to begin lending again which has the potential to increase the money supply by an additional $132 trillion! (see Reisman: http://tinyurl.com/yfnv4rn). Of course, the FED can be forced into QE beforehand if foreign governments dramatically slow their treasury purchases.

The lack of cash, or as Nick says “there is no freakin’ money”, is due to the incredible leverage before the crash. Instead of saving more, folks found it more profitable to invest most of their cash and borrow multiples on top of it. When the leveraged investments failed, their equity and cash holdings were wiped out.

Conclusion:

In dollar terms, if someone is short gold it means that they are long the dollar. I see no reason to have any confidence whatsoever in the dollar. I tell people to look at the dollar as the “common stock” of the USA – just like you would look at the stock of a corporation. When valuing a stock you would look at the management and balance sheet of the corporation to determine what you would pay for the the stock. When I apply this same analysis of the USA I conclude that the dollar is not a “stock” that I would want to own. Sure, the government can increase revenue because they have the power to tax but even a 100% tax is not enough to correct the problem (source: ShadowStats.com Hyperinflation Special Report: http://www.shadowstats.com/article/hyperinflation).

If you are still unsure as to which scenario to believe, it might make sense to put half of your assets in cash and the other half in gold. Any drop in purchasing power in one would likely be offset by the increased purchasing power in the other and your original purchasing power will likely be preserved.